We often see insiders buying up shares in companies that perform well over the long term. Unfortunately, there are also plenty of examples of share prices declining precipitously after insiders have sold shares. So we'll take a look at whether insiders have been buying or selling shares in Challenger Limited (ASX:CGF).
What Is Insider Selling?
Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the company. However, most countries require that the company discloses such transactions to the market.
We don't think shareholders should simply follow insider transactions. But logic dictates you should pay some attention to whether insiders are buying or selling shares. For example, a Columbia University study found that 'insiders are more likely to engage in open market purchases of their own company’s stock when the firm is about to reveal new agreements with customers and suppliers'.
The Last 12 Months Of Insider Transactions At Challenger
In fact, the recent sale by MD, CEO & Director Richard Howes was not their only trade of Challenger shares this year. Earlier in the year, they spent AU$958k to buy shares at AU$3.83 per share. That means that an insider was happy to buy shares at around the current price of AU$4.00. That means they have been optimistic about the company in the past, though they may have changed their mind. While we always like to see insider buying, it's less meaningful if the purchases were made at much lower prices, as the opportunity they saw may have passed. In this case we're pleased to report that the insider purchases were made at close to current prices. Notably Richard Howes was also the biggest seller.
In the last twelve months insiders purchased 352.00k shares for AU$1.4m. On the other hand they divested 100.00k shares, for AU$384k. In the last twelve months there was more buying than selling by Challenger insiders. The chart below shows insider transactions (by companies and individuals) over the last year. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
There are always plenty of stocks that insiders are buying. So if that suits your style you could check each stock one by one or you could take a look at this free list of companies. (Hint: insiders have been buying them).
Challenger Insiders Bought Stock Recently
At Challenger,over the last quarter, we have observed quite a lot more insider buying than insider selling. In total, MD, CEO & Director Richard Howes bought AU$1.3m worth of shares in that time. But MD, CEO & Director Richard Howes sold shares worth AU$384k. We think insiders may be optimistic about the future, since insiders have been net buyers of shares.
Insider Ownership of Challenger
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. From our data, it seems that Challenger insiders own 0.3% of the company, worth about AU$7.2m. Overall, this level of ownership isn't that impressive, but it's certainly better than nothing!
What Might The Insider Transactions At Challenger Tell Us?
It is good to see the recent insider purchase. We also take confidence from the longer term picture of insider transactions. But on the other hand, the company made a loss during the last year, which makes us a little cautious. On this analysis the only slight negative we see is the fairly low (overall) insider ownership; their transactions suggest that they are quite positive on Challenger stock. So while it's helpful to know what insiders are doing in terms of buying or selling, it's also helpful to know the risks that a particular company is facing. For example, Challenger has 3 warning signs (and 1 which is concerning) we think you should know about.
Of course Challenger may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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